Monday, 15 January 2007

John Boy Key = Gross National Product

Several sun-filled weeks spent away from politics have left me just as disgusted with the latest scum vomited up by NZ's party-political system as I was before I hit the beach. I refer of course to the gross National product of John Boy Key. Phil Sage does his best to defend the indefensible, and in so doing inadvertently puts his finger on my greatest concern over John Boy, greater even than his inability to stand for anything. (As they say, a man who stands for everything really stands for nothing. Such an observation could almost have had John Boy in mind when it was first made.)

Here's Phil's mercifully brief apologia for John Boy. Key, argues Sage, "has succeeded in the biggest genuine open market of all - currency trading. Sound ideology does not count [in such a market]. What works counts. " At this stage you can almost here the word "therefore" being polished up for use, even if the effect is only the following non sequitur: "I think he will bring that [same] approach to bear on NZ politics... The same things apply to making money long term in currency markets as applies to running a successful economy, spotting and getting ahead of global trends."

Now, all credit to John Boy for his success as a currency trader, but only a moron could equate trading currencies successfully with "running a successful economy," the goal as such a trader being very much narrower, and requiring no "ideology" beyond the necessary commitment to making money rather than losing it. It's a truism a six-year-old would understand to say that "ideology does not count" in such a market.

Anyone however suggesting that the same things apply to making money in currency markets as applies to attempting to run an economy from the Beehive can only be considered dim, if not totally braindead.

Indeed, after several centuries of failure at the job, only a moron or a National Socialist (or Jim Anderton) would look to or expect a politician to "pick winners" or to "run an economy," let alone expect any success from such a venture -- even Tony Blair and Michael Cullen seem to understand this much, however dimly. As the industrial Legendre answered when asked by Louis XIV's economic dictator Jean-Baptiste Colbert what he could best do to help him and his fellow industrialists, "Laissez-nous faire!" -- leave us alone!

"What works" in currency trading is clearcut: ie., ensuring you advance your trading positions. "What works" in politics however is very different, and very far from clear cut -- and politicians "picking winners" let alone "running a successful economy" is emphatically not something that works. Never has. "What works" with an economy is not tinkering (or worse), it is leaving entrepreneurs and industrialists alone to either back or become their own winners.

Many politicians have tried to fake reality, have tried themselves to "run" a successful economy. Stalin. Roosevelt. Stafford Cripps. Robert David Muldoon.

All tried. All failed.

To venture such a thing, for whatever motive, is to totally misunderstand the difference between political power and economic power, or (in the case of Stalin) to rely upon that misunderstanding in others. As Harry Binswanger points out so memorably, the symbol of political power is the gun, whereas the symbol of economic power is the dollar. There is a distinct difference between the two.
The only power a business has to induce customers to give it money is the value of its products. If a business started to produce an inferior product, it would eventually lose its customers. By contrast, the only power that the government has to offer is a threat: "We'll dictate what businessmen can and cannot do—and businessmen better toe the line or we'll throw them in jail."
Muldoon was a man who never understood the distinction, but who enjoyed the effect of making such threats. I once heard a radio interview with Muldoon in his prime. Running an economy, he said, was rather like driving a car. He had no idea, he boasted, what pushing the pedals and playing with the car's knobs actually did 'under the bonnet', and nor did he need to (in other words, he had no interest in what actual effect his threats had on those he bullied) -- all he needed to know was the effect of the levers being pulled and the pedals pushed -- that is, the effect of his threats as far as his latest prescription for economic rescue was concerned.

As many of us will still recall, the long term effect of more than a decade of Muldoonist intervention was not something that could be described by the word "works," let alone "successful." The result instead was the creation of a minor economic dictator, of businessmen and journalists like scared rabbits, and of an economy like a Polish shipyard. The worry is that John Boy sees himself in the same mould. Not necessarily as an economic dictator in the completely Muldoonist mould, but certainly as a meddler. A tinkerer. One able and willing to try and pick winners and to run the economy from the Ninth Floor of the Beehive.

Not even Alan Greenspan with all the many levers at his command would ever have countenanced such a thing.

Muldoon didn't fail at economic management because he was no good at economic management; he failed because economic management and economic planning by government must always fail -- because only individuals acting in their own interests have the knowledge and the 'asymmetric information' to entrepreneurially plan their own lives and their own efforts ... and because only individuals have the right to do so. As Friedrich Hayek observed:
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.
In other word, it is not given to anyone to know all that would be necessary to run an economy, no matter how good a currency trader he or she once was or how vicious the threats he or she os prepared to make. As Ludwig von Mises points out in Planning for Freedom, it is not the government that runs the semi-capitalistic economy we enjoy and from which we all benefit, but the sum of voluntary choices made by individual actors, ie., the market.
It [is the market that] directs each individual's activities into those channels in which he best serves the wants of his fellow-men. The market alone puts the whole social system of private ownership of the means of production and free enterprise in order and provides it with sense and meaning... All that good government can do to improve the material well-being of the masses is to establish and to preserve an institutional setting in which there are no obstacles to the progressive accumulation of new capital and its utilization for the improvement of technical methods of production.
Who runs the economy? Not politicians, they just get in the way. Who really runs the economy? You do. You run your part of the economy every time you make an economic choice, every time you save or invest, or produce or consume a good or a service. The sum total of the spontaneous order created by such choices is what creates an economy, not the ignorant meddling of politicians -- which invariably serves only to get in the way of such freely-made choices.

In short then, it is not "economic management" that is wanted from government, or from those who would aspire to be in government: It is the institutionalisation of the rule of law, offering legal protection for the economic choices we make, and then getting the hell out of the way.

Recognising and implementing such a thing is what is known as taking a principled stand. If nothing else, Don Brash understood if not fully endorsed such a role for government, and to that principled stand New Zealanders responded -- to such an extent that he doubled National's vote at the last election from that achieved by its current deputy leaderette at the previous election.

"I do not expect Peter Cresswell to endorse John Key any time soon," observes Sage. He got that much right.

LINKS: The use of knowledge in society - FA Hayek, Library of Economics and Liberty
Planning for Freedom - Ludwig von Mises, Mises Institute [book]
Cue Card Libertarianism: Power - Not PC

RELATED: Politics-NZ, Politics-National, Hollow_Men


  1. What a laff you are Peter.

    "only a moron could equate trading currencies successfully with "running a successful economy."

    And why? Do you know how hard it is to be a good currency trader? What is your pip spread?

    Like you are a great currency trader - you told your readers to buy Iraqi dinar 18 months ago cuz things were so great in Iraq.

    As Greenwald said - you should be posting the following :

    "I am forced by my record of continuous abject wrongness to acknowledge that I actually have no idea what I am talking about and the tiniest amount of shame that I possess therefore precludes me henceforth from ever opining on this topic again, and if I am incapable of adhering to this commitment, I urge you in the strongest terms not to rely upon anything that I say, because my pronouncements have been so blatantly misleading for years"

  2. Let's all play 'Enter the Moron.'

  3. Sage said, "John key has succeeded in the biggest genuine open market of all - currency trading. sound ideology does not count. what works counts. I think he will bring that approach to bear on nz politics. he will be very open to ideas and will be quite happy to endorse policy from wherever it comes proving it helps the boat go faster."

    Think America's Cup. Ideas that made the boat go faster also sank it.

    But anyway, the point PC is making, currency trading (or yacht building) is not comparable with running an economy.

    When unintended consequences might conceivably outweigh the intended, do nothing. That is why we need very little govt and very little policy.

    Key is on record as saying the govt should be more "hands-on". Why?

    And Ruth, You are all swagger. I can't remember you ever putting up a reasonable or persuasive comment. You spend all your blogging time acting like the archetypal chauvinist male...and then call me the misogynist.

  4. Peter

    Thank you - you are the best, though GMan is still my first love.

    How long did it take you to write it - 40 minutes?

    I can only hope that Dr Brash has the chance to read this post.

    With all my love and appreciation

  5. "Muldoon didn't fail at economic management because he was no good at economic management; he failed because economic management and economic planning by government must always fail"

    And there is the rub. The problem is that National does not belive in a small government or laissez faire economics. Look at how quickly, two posts comments in!, the discussion reverts to a tepid discussion about tax rates and thresholds - How about making government smaller? No chance.

    I'd have a look at Blair's original post that spurred Phil on. Blair does quite a good job and makes many good points. I've also discovered Michael Bassett's archives - reading some of his comments on the National Party just before and after the 2002 election can only be described as deflating.

  6. Lindsay vs Ruth.

    Great stuff.

    Makes a change from me being called the misogynist and having to be the one to put her in her place.

  7. Antarctic Lemur said...
    [Mai Chen]

    I agree with Antarctic here. Ruth might call her lawyer Mai Chen to sort out those who are name-calling, by sending them warning letters.

  8. Just for completeness here, here's some of the links you guys have been talking about:

    Blair's post that Eric says "spurred Phil on." More's the pity.

    Plus ca Change
    Eric's 'paste' in which Michael Bassett writes about the National Socialists in ... well, could be almost any non-Brash year, really.

    Oh yes, and the post in which I "told" everyone to buy dinars seventeen months ago.

    And a question: What do you think? Should I remind the person with the reading and comprehension skills of a two-and-a-half-year old that she's been barred, or should we keep her on here for entertainment value?

    Answers to Mai Chen, on a postcard.

  9. happy new year peter. perhaps you are unable to credit John key with that most important of disciplines. knowing when to sit still.
    knowing when you cannot beat that market and staying the feck out of it. You equate him with muldoon who had no understanding and tried to swing the levers of the economy like a 5 year old in a car.

    It may well be the best option od to follow ayn rand and stay the hell out of the market. but when you have elephants like china, europe and the US skewing that market it seems a pretty fucking stupid policy to me to keep religiously believing in the market.

    just like a believer that it is gods will.

    If you believe there New Zealand operates in any free market you are a naif. better the trader who understands and exploits the imperfections that a religious devout.

    if that makes me a moron then i will wear the tag with pride.

    You obviously prefer the economics of a history professor who at 60 owns only his own house. and that is what your reviling john key approves.

  10. Ruth,

    I'm surprised to find you back here.

    I'm not surprised to find that you're still skulking around, failing to address questions put to you.

    For instance, over on DPF's blog, you said:

    What upsets me re the libertarian camp is they don't seem to care about torture, imprisonment without trial, illegal wire-tapping etc.

    LibertyScott called you on this, asking:

    Ruth: Do please take your pills and say at what point the current leader of Libertarianz has supported the use of torture by any country?

    ... and, to the surprise of no-one, you haven't yet responded. Care to? Also, I note that you still haven't responded to my reply to your blog post on SOLO, wherein I said:

    The floor's yours. Care to explain to us all how you think Israel should deal with Hezbollah incursions into their territory from Lebanon? Since you're so sure their current strategy is wrong, I'm sure you've already come up with an alternative.

    Oh yes, and while we're at it: what's your strategy to combat the spread of Islamism into the West? You know, "honour killings" in the U.K., the attempted coup in Canada, Saudi-funded Wahabbi Islam propaganda in the U.S.A.? Again, I'm sure that since you're so strongly opposed to the theme of Death to Islam, that you'll have some fascinating, enlightening suggestions to make in that area as well.

    I'm curious as to whose opinion you're planning on changing by posting angry, ad-hominem attacks against Peter, all the while ignoring the real issues, & lying your head off.

  11. Sage, you said, "when you have elephants like china, europe and the US skewing that market it seems a pretty fucking stupid policy to me to keep religiously believing in the market."

    Thanks for making your position on free markets crystal clear, Phil.

    Your understanding of how markets function seems about as cogent as the false alternative you offer when you suggest "reviling John Key" means I must endorse Michael Cullen. In fact I endorse neither and revile both, unlike your new Labour-lite leader whose crawling me-tooism means his policy-settings will be made for him from Heather Simpson's office.

    Having said that however, it could be said for Cullen that at times at least he seems aware of what he doesn't know about economics -- which is an awful lot -- meaning he's almost scared to alter anything too drastically, whereas I'm not sure the same can be said for your tinkering friends in the National Socialist Dream Team.

  12. peter - i dont think you understand the nuance of my position. 4 sellers and 4 buyers in a market. 7 of them know the market is rigged. you are the other one and you believe it is a free market with equal information. you get screwed.

    I have worked out that market is rigged and behave accordingly.

    both of us believe in genuine free markets. But both of us do not believe that New Zealand operates in many genuine free markets.

    Tailoring your behaviour to get best performance under existing market conditions seems far more sensible than holding to what have now become quasi religious beliefs.

    I am sorry that I have not had time to properly expound my position but I think we will be coming back to this subject

  13. sagenz,

    Interesting idea, if I understand you correctly - only von Mises proved that it's wrong.

    You can't correct market interference with further interference or planning, because the volume of data involved is too great to deal with.

    Operating a mixed-market national economy in an attempt to deal with a mixed-market global economy will fail, because what you're creating is just another type of mixed-market economy. More simply: you can't fight fire with fire.

  14. so duncan. i guess van mises never played poker... when you cannot spot the sucker you know who it is. :)

    I could get any study to prove any damn thing I want

  15. sagenz,

    Have a read of some of Mises' work. A lot of it is available in free ebook form on, in particular Liberalism.

    Basically, his argument boils down to the fact that no matter how much you may want your mixed-market economy to work - and no matter how hard you study it and how earnest you are - you will fail because of the volume of data.

    On this basis he predicted the failure of the Soviet economy (at a time when to make that prediction was quite unpopular), and he was subsequently proved correct.

    Unlike most other economists, Mises recognised that economics isn't like poker, for poker is a game between a few people, whereas national economies involve millions or billions. It is simply impossible to do what the Soviets attempted to do with their economy, & what NZ & the US are doing to a smaller degree: to 'play' the economy like it is a poker hand.

  16. duncan - thanks for responding seriously to what was a semi flippant comment. I will read van mises when I get time. I have been thinking a better explanation of my view is required but have no time now. I will make a point of letting you and peter know when i get it written :)

    and lindsay - I have been meaning to respond to your sunken boat analogy. the glass is half empty is a socialist view. you cannot make an omelette without breaking a few eggs. and it was the aussie boat that sank if i recall correctly. nz did win the americas cup so they did something right

  17. Ruth said...
    [Do you know how hard it is to be a good currency trader?]

    Here is a publication that might be of useful for your currency trading Ruth.

    "The Analysis of Foreign Exchange Data Using Waveform Dictionaries"

    I've never done trading currency before but it is something that I am developing (software) to be marketed to traders like yourself, John Key, financial institutions, financial analysts, etc,...

    Perhaps, you can contribute something constructive to the world of blogosphere such as giving me some useful hints about currency trading and not your usual personal attack. Sorry, no need for name-calling.


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